Limited Liability Partnership (LLP) vs Partnership

Selection of the correct form of business entity is the most important decision taken by an entrepreneur. To make choices simpler and assist you in taking a well informed decision, here is a basic comparison chart of the three most common yet credible forms of business in today’s time.

Limited Liability Partnership – A corporate form of Partnership
Limited Liability Partnership has been introduced in India by way of Limited Liability Partnership Act, 2008. The basic premise behind the introduction of Limited Liability Partnership (LLP) is to provide a form of business organization that is simple to maintain while at the same time providing limited liability to the owners. It exhibits elements of both partnership and corporation. In LLP, one partner is not responsible or liable for another partner’s misconduct or negligence unlike a traditional partnership in which each partner has joint and several liabilities.

Partnership
Partnership is governed by Indian Partnership Act, 1932. It is the relation between two or more partners who have agreed to share the profits of a Business carried on by all or any of them acting for all. The partners can enter into a verbal or written agreement between them as per their discretion. The Registration of partnership firm is not compulsory.

The Comparison chart will give you a clear distinction between all the three forms of business.

Factors of ComparisonLimited Liability Partnership Partnership
Legal IdentityIt has separate Legal entity different from partnersNo separate legal entity
Minimum Members 

Designated Partners – 2

 

Minimum Partners – 2
Maximum MembersNo limit100
Minimum CapitalNo minimum requirementNo minimum requirement
RegulatorRegistrar of CompaniesRegistrar of Firms
Compliance RequirementsAnnual Return FilingNo mandatory compliances
TaxationTaxed at 30%Taxed at 30%
Cost of complianceAs there are no compulsory compliances for a partnership firm, there are no cost of compliance as such
LiabilityLimited to Capital contributionUnlimited liability of partners
CredibilityMediumLow
Investor PreferenceMediumLow
Statutory AuditMandatory if Contribution is above 25 lacs or, if Turnover is above Rs. 40 lacsNot Mandatory
ConversionCan be converted into a Company by following the procedures of Companies ActCan be converted into a Company by following the procedures of Companies Act
Procedure
  • Obtain DSC (Digital Signature Certificate)
  • Obtain DPIN (Designated Partner Identification Number)
  • Name Approval
  • Filing for Incorporation
  • File LLP Agreement
 

  • Preparation of Partnership Agreement
  • Stamping and Notarization of the partnership agreement.
  • Registration of Agreement with the Registrar of Firms – Not compulsory, very expensive and time consuming

 

Time Taken for Registration10 -15 Days7-10 days
Relation inter se partnersPartners are the agent of firm and the partners. One is responsible for the act of other(s)Partners are agents of the firm only.
Ease of closureAn LLP can be closed by meeting certain conditions and following the procedures of LLP Act 2008.A Partnership can be closed anytime as per the conditions laid down in the deed or agreement.

Conclusion:
– Partnership firm, even if registered, is not a separate legal entity.
– LLP is comparatively a more organized form of business, hence has more credibility.
– Partners of a partnership are agent of one another, which makes all the partners responsible for any fraudulent act of one of the partners. And partners are personally liable to the extent of dues of the partnership. But contrary to this, in LLP, partners are not liable for the act of one another. They are only responsible for their acts and liable to the extent of their contribution.

Nikita Bhatia
Nikita Bhatia
Nikita Bhatia is the Co-Founder of VenturEasy, an online platform for Company Registration, Tax Consultancy, Trademark Registration, Annual Filings, Accounting and Business Compliances in India. A Chartered Accountant by profession, she has wide experience in the field of Audit, Accountancy, Taxation and Corporate Governance. Her exposure across a wide portion of economy gives her the edge to help startups scale up and guide them effectively in legal, compliances and tax related matters.

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